Taxpayers face a "significant" bill over the botched West Coast rail franchise process, a report from a Government spending watchdog has said.

The Department for Transport's (DfT) running of the West Coast bidding process lacked management oversight, with some staff "confused" by the system, the National Audit Office (NAO) report said. The Government has already indicated that repaying bidding costs to the companies competing for the franchise is likely to land taxpayers with a bill of around £40 million.

In its report, the NAO said staff and adviser costs, legal costs and money for the two reviews set up by the Government following abandonment of the West Coast bidding amounted to £8.9 million.

NAO head Amyas Morse said: "Cancelling a major rail franchise competition at such a late stage is a clear sign of serious problems. The result is likely to be a significant cost to the taxpayer."

Commenting on the report, Public Accounts Committee chairman Margaret Hodge, Labour MP for Barking, said: "The DfT's handling of the West Coast franchise was a first-class fiasco."

She continued: "It has left the Government's entire policy on rail franchising in disarray, as a further three competitions have had to be put on hold. The total cost to the taxpayer of putting it right is currently unknown but is likely to be significant."

Ms Hodge said the DfT had "blundered into this major and complex competition for one of the biggest franchises in the country without even knowing how key parts of its policy were to be implemented".

She added that bidders were invited to tender before the department knew how it would calculate companies' capital needs. Also, she said, the department placed extraordinary reliance on a model that was not fit for making commercial decisions and had not been sufficiently scrutinised.

Predictably, this left it wide open to legal challenge from bidders. Ms Hodge continued: "The department's conduct was characterised by haste, confusion and weak internal and external communication. However, the ultimate failure of this competition was sealed by a rich mix of the department's feeble and forever changing management and almost non-existent oversight."

Transport Secretary Patrick McLoughlin said: "I am pleased to say that we are already taking swift action on this front and I believe the plans we are putting in place to ensure future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance, will prevent a repeat of these lamentable failures."